tv U.S. Senate CSPAN September 23, 2011 5:00pm-7:00pm EDT
digging you propose we do. it's like doing search reports at these think tanks. they are nicely written and go on a book shelf. >> yep. this is a little bit different though. i think that's not a fair criticism. i think if you go and read our reports, it's not like a 700-page report. there's a lot of opinions to it, but the report itself is 67 pages written in very, very plain english that i guarantee you can understand it. >> that's an improvement i noticed that either we talked about things that made it worse, or improving it, it was just principles because principles always sound really nice. one of the things about the fiscal commission is even when they said this is a frame work for how something could work because in discretionary spending, for instance, it's through cap. they then proceeded to put examples how to fill in the savings. you have to dig somewhat, but if you look at commission and the report, there's actually so many
policies out there fully developed, flushed out. i think it's win of the advantages the super committee has is that the work's been done. they wonderful starting points of the comprehensive reports with details of reforms that in most cases were supported in a bipartisan way. now it's the political discussion of how to work out the details and come up with the compromise. >> that's one of the things giving me comfort they can do this by november 23rd. you know, the base work has been done. >> david? >> well, there's too much agreement here. >> you must identify yourself. >> david stockman. i want to cause dissension. it's obvious when you spend 24%, taking in 15%, you need a massive new source of revenue. we're going to cut a little bit, but not much. that should be a consumption tax or tobin tax on wall street --
[inaudible] they are not doing anything that's very important or interesting for the economy right now, but what we hear instead is the great white hope is tax reform. i'd like to suggest to this group and see your reaction that tax reform at the end of tax reform is a massive swamp at the end of gulch that will lead to massive political conflict and result in even worse polarization than we have today. why? just quickly. there's supposedly a trillion tax expenditures. $200 billion is preference for capital gains and dividends. $180 billion of that is the reference for retirement. $170 billion is medical. $120 billion is homeowners and all the different visas. put that together, it's $700 billion and which part of that will you blast away? how much revenue are you going
to get out of the lower tax rates that you might be able to trade off? i think it's the wrong direction. it will not solve the revenue problem. it'll immerse the system in congress flibt for a -- conflict for a long period of time. meanwhile, the red ink continues to billow. the bonds will continue to be issued, and we'll be tempting faith -- [inaudible] by the day. you know, fill that out because there's too much consensus about tax reform. it's a great idea, but i don't see -- it is a productive route to go even though it sounds great. >> i'll take the first stab at that because i have to disagree with you. there's your conflict now. [laughter] you certainly are right that reforming the tax code is an incredibly difficult task, and getting into the weeds of doing that is a complicated and difficult thing, but just to use the bowles-simpson model as one example, and when we
deliberated, we had before us, oh, a number of different tax proposals that had been very well thought out by a number of very prominent analysts. different kinds ranging from a consumption tax to income tax, but were mixtures of the two, and admittedly they didn't get into the weeds of the detail you say causes the political strife, but the bowles-simpson commission did. they talked about all the examples you talked about with the options and, in fact, did it down to the numbers and by doing so were able to show with those specific tax expenditures and others they proposed to eliminate, how you could then compensate by reducing the rates. many people say to me, oh, you know, this special committee can't deal with tax reform because it's just too complicated to get it done by december. it may be true it's complicated by december, but it's not too
complicated to put into the place the parameters of a tax reform package and tax congress to do it. i think they can do it whether it's the simpson-bowles model or another model, i think it can get done. one thing i agree with you on because we experienced it is once you propose it, the knives come out. [laughter] every single special interest group in america, i think, was activated when we put our proposal on the table, and i felt it from the front and the back, and still am. [laughter] i will admit to you that it is a ferocious fight out there, but i tell you at the same time, i got an equal number, if not even more, complements from people saying you know what? we've got to do this. it's time for america to take this opportunity and move forward. >> yeah. david, we did look at a consumption tax as you probably know, and we spent a lot of time
talking about it, and many of us on the commission prefer a consumption tax than a tax on work on tax on capital as a better way to finance the operations of the country, and you can do a consumption tax so it's not as regressive as it might be if you didn't tashing that into -- take that into account. however, i thought there were two reasons we didn't do it. one, there was a sense of the senate while meeting that i think passed with 83 to nothing. i thought that was a clear there's no progress to be made on consumption tax. i thought the republican members of the commission made a very good argument, and that was if unless you're going to eliminate the income tax, if you have an income tax and consumption tax, then what you have created is too engines of revenue, and over time, they will barrel ahead, and you'll take too much revenue
out of the economy, and therefore, we set it aside. we then looked at other alternatives and i was personally amazed to see that we have about $1 trillion worth of revenue that comes into the country in corporate and individual income tax. that's the net number. that's after one forty $1 trillion of the tax expenditures. all these tax expendtures are are spending in the tax code. it's just spending by another name, so we said in our zero option, as an example, one of the options out there, what if we just eliminated all of these expenditures? what could we do with rates? what if we used around 90% of it, use 92% of the money to reduce rates and 8% of it to bring down the deficit? under that approach, we could
reduce the deficit by a trillion dollars over ten years, and we could take income tax rates to 8% up to $70,000. 14% up to $210,000, and the maximum marginal rate of 23%. take the corporate rate to 26%, and we could pay for putting 234 a territorial system so that that trillion dollars is now taxed overseas to be brought back to this country to create jobs over here. we thought that would create dynamic growth in the country and bring down the deficit, and it could be done in a very progressive manner. we did a distributional analysis on our work, and doing the analysis earlier was just as progressive as our current tax code. we thought it a viable way to go forward. >> i think the short answer is there's a potential bipartisan coalition for simplifying the tax code, broadening the base, and bringing down the rates. it appeals to both democrats and
republicans. there is no such coalition in favor of a consumption tax. in the report, we did have a broad base consumption tax, but we came to think that was not really feasible because everybody's against it. the democratics are against it because they think it's regressive, and the republicans are against it because it's a new tax that might raise too much money. you have a negative coalition there. >> wasn't that always the famous larry summers thing when they realize the opposite, then everyone rallies around it? when republicans realize it's principles depressive and democrats realize it raise z so much money? [laughter] >> that's true. to build on the point of that, i have to say i went into this thinking i should be open minded about t take a look at it, read a book about it, talked to a number of people, and this was kind of one of the other learnings when erskine explained
the growth. we had a talk the other day in the committee meetings, and i was immersed in details so i relatively understood it. they talked about caps, triggers, sequesters, and i was having a difficult time following all of this stuff, and i finally turned to someone who said, you know, this sounds to me like you're -- congress is trying to protect itself against congress, and they said, yeah, that's exactly right. [laughter] when you start thinking about it that way and throw in the whole new dynamic, it made me nervous and caused me to think the other way. in terms of the conflict, the conflict is there any way. it's $4-$8 trillion over the next 10-15 years, the conflict's going to be there. i was at a meeting with senator blunt this morning, and i thought he gave us an
interesting american history lesson kind of going through over the last 230 years the various points in time where there were major times of controversy followed by big decisions that put the country on the right path or developed the path of the country for the next 20-30 years. they pointed out overson, jackson, lincoln, johnson, roosevelt, fdr, reagan being the last one in his view, but he said, and i thought it was interesting is that given what we're facing right now, we're at another one of those times. put it in the context of the 1 million participants and now we have 4 million participants in the global economy, for me, that brought that comment home. this is one of those times, and we need to have this discussion. we can't avoid it. if we really want to be the kind of global economic power that we are today, and we want to have that same kind of position for our kids and grand kids, we need
to be having these conversations now. >> we have time for one -- >> one thing quick if i could. >> yeah. >> senator crapo, they suggest this is the time, and now we're too close to a presidential election. there's no way to get a big deal now. >> well, fist of all, the closer we get to an election, particularly a presidential election, the harder it gets. that's just a political fact of life, but i refuse to accept that the so-called political wisdom that we have to wait until after the next election. for one thing as pretty much everybody on the panel said we don't have that long to wait. i think if we wait another 18 months, we lose critical time, both in terms of being able to create the adequate solution and in terms of being able to get the political momentum. secondly, the detail work has be done, not only by the commissions we've talked about here, but by many others. it's not a problem of trying to
figure out how to do the different solutions in the budget or entitlement budgets or tax reform. it's a problem of building the political con consensus, and i personally believe now is the time, and it is doable if we will not tell ourselves that we can't do it. we have the capacity to do it. in fact, the reason we're all here today is to tell the congress, i hope, and to tell the american people that we have an incredible opportunity out of this crisis that we face to build as dave said to put america on the kind of path we all know we want to be on. >> the american people are far better educated about the perils of this today than they were back in december. nobody believed back in december we could get a majority of the votes yes for our plan, and we got a super majority to vote yes. >> we're going to move on to the next pam, but i want to close
with an observation. so much of the pam is on tax reform which is interesting because taxes is one of the biggest hot spots in the whole thing. are we going to? are we not going to? if we are, how do we? there's pro-growth tax reform, a bipartisan con consensus how that works and simplifies tax codes, and closes deficits. the other piece is that goes hand-in-hand with fontmental tax reform, another reason people are hesitant to put in a new stream because make sure the drivers of the problem, health care and retirement programs, are reformed in a sustainable way, and you want that to be paired with the tax reform. i think one of the things when i listened to senators talk on the road and all around about this on the admission is that the more you brought all the pieces on to the table and more on the commission you went back much to
your surprise rather than losing methamphetamine, you got more people coming on. if you could close with that observation. >> yeah. simply the more comprehensive we make it, the more skin that everybody had in the game, the more people were willing to support it. the answer to this whole question is, look, the problem the nation faces are real. they are big. the solutions are all going to be painful. dick durbin said when he voted yes, there were things in this plan that he hated more than the devil hated holy water. [laughter] he voted yes because he didn't believe that this nation had any other choice. the problems of the solutions are painful, and there's no easy way out, and we have to face up to it and go big or go home. >> all right. thank you. i'd like to thank the panel while the second panel comes up. thank you so much.
[applause] >> you don't play politics at the time of national crisis. you don't play politics with the national economy, and you never, ever play politics with people and jobs. >> with the british house of commons in recess, annual party conferences are underway. watch nick clegg's democratic congress this sunday at nine on c-span. weeks ahead, party conferences with labor party leader and
conservative leader, david com -- cameron. >> today, they passed down the temporary spending bill. some support hinges on how disaster relief is paid for in the federal budget. next, democrats on the effort to fully fund fema and avoid a government shut down in one week. a vote on a new senate version is scheduled for monday. they called for republicans to come to the table this weekend so both parties can reach common ground. this is 20 minutes. >> why do i think it's republican? it funds the government at the levels we agreed upon in july, totally agreed on that. in addition to that, we've taken the money that the house said should be in fema, and we put it in there without the offsets, so we've compromised even though the house has right now sitting over there on one of those
shelfs, a bill we passed on a bipartisan basis that they have not taken up. we'll make sure that hundreds of thousands of americans who are receiverring in the wake of floods, wild fires, and hurricanes get the relief they deserve. it also maintains our position that we should not have to kill jobs to fund disaster relief to people who need it. i'm so aware of the speeches given in the house floor by my colleagues here and others who spoke out, is it really fair that the funded disaster relief we take american jobs? we're funding all kind of things unpaid for now around the world in iraq and afghanistan. we shouldn't have to take american jobs to fund disaster relief that we've never done before like that so our bill does that. this is the way government
should work. when two sides can't get everything they want, they meet in the middle, commonground. that's what we've tried to do. this is exactly what this legislation does that's on the senate floor now. unfortunately, colleagues in the house have taken the opposite approach. when they didn't get what they wanted, they went to the tea party. these are important issues. that's why i'm calling on my colleagues, senator mcconnell, speaker boehner, to take the weekend, work with us, cool off and let us work together to find commonground, so i am directly calling on speaker boehner, leader mcconnell to pick any time to meet. senate will be here next week to be sure we resolve the issues. i hope our house republican colleagues will join with us. i'm confident that if we work together, we can find a
solution. the solution is there if people would stop and read our legislation, it's there. it funds government, the levels agreed upon in july, and it gives fema the relief that they need. these americans are suffering from natural disasters all across the country are counting on us to do just that. we need a solution. all americans want to see the government work to the and forge compromises. they are counting on us to do this. pelosi? >> thank you very much, senator reid, for the invitation to be with you today and your great leadership in trying to address this challenge which we have not seen this before where we come to a place in time of natural disaster, the one party or the other in the congress has said that it must be paid for, but let me say i associate myself
with all of your remarks made and just add i was thinking of the families that i have met that many of our colleagues have met along the way who have been affected by natural disasters. by the fact that on wednesday, fema funds may be running dry in addition to the fact that we're facing a september 30th deadline. this is really not the time to try to say we're going to balance the budget on the backs of those affected by natural disasters. you never know where the next one is. we have fires that have been out of control this texas. we have joplin, missouri. we have earthquake, hurricane, floods, tornadoes along the east coast. you don't know what is next. we need more. now, i fully supported what you proposed in the senate bill. i think it's a good compromise to, as you said, to support the funding that is in the house bill, but on the other side of
the that to remove the need for a pay-for. that seems to be a very excellent compromise, especially when the pay-for is a job killing pay-for, one that increases the deficit by destroying existing prospects of good paying jobs, so i salute what you're doing. we stand ready to meet whenever to come together to find agreements and the american people expect no less and deserve much more. with that, i'm pleased to yield back. >> thank you very much. we shouldn't play politics with disasters. each one of us at this end of the room have been through it. we had disasters in our own states, and we know what it means. a lot of people are facing the worst experience of their lives losing homes, businesses,
wondering if there's a roof over their heads. each and every time that happened in my service in congress, we rally behind those victims of disasters. we have not said we're going to the congressional budget office to do accounting to help the fellow americans. we stood behind them, provided the funds, and we were proud to do it because we were part of the american family, and when it comes to our efforts overseas, we know in iraq and afghanistan for years the disasters in those two countries were not paid for at all. they were provided for by the american taxpayers, and there was no payment made. that's why the strategy of the house republicans on this is just wrong. we've got to maintain the tradition of keeping this american family in tact in the midst of a disaster. if speaker boehner thought he could just send us this bill which killed jobs, good manufacturing jobs in order to pay for disasters, and leave town, i think he ought to take a look at the roll call we just had.
only 36 members of the senate supported that position. seven republicans joined us in moving to table the bill that was sent to us by speaker boehner. that tells me it's time to sit down and work out an agreement keeping our word to the people of this country and to the victims of disasters. what we try to put together on the senate side is a legitimate reasonable compromise funding this government at the level we all agreed to in reaching a level of disaster aid that is consistent with speaker boehner's request. we've gone halfway. i think that is a true compromise, a true bipartisan effort, and i hope we can now bring our senate republicans around to not only defeat the boehner approach, but stand with us in a bipartisan fashion monday to fund the government and fema. >> senator schumer indicated he wouldn't mind our leadership in the house before him. >> well, thank you very much, senator schumer.
>> always a pleasure. >> came to congress about the same time. i am pleased to join senator reid and senator durbin and senator schumer in urging our republican colleagues to reach commonground, to reach a compromise. last night, we had a debate on the house floor. republicans and democrats rose and particularly some very compelling statements from republicans from pennsylvania and republican from mississippi talking about people who have been ravaged by flood and tornadoes 234 particular. there are people ravaged by hurricanes and fire and draught as well, and the stories were wrenching and the debate was, we need to help, and we need to help now. we suggested last night that what the house is going to pass
would not enjoy majority support in the united states senate. we were correct. notwithstanding that, the house determined to send that bill knowing full well 245 it could not enjoy majority support. now, i'd like to read you two statements 245 -- that were made by mr. boehner and mr. cantor in the last 20 12* days. "we know the two parties will not agree on everything, but the american people want us to find commonground and i'll will looking for it." said mr. boehner on a few days ago. the majority leader said this, "we have to focus on areas of commonality and try to transcend
differences here." today, leader reid offered a unanimous consent which essentially adopted the agreement that we made in very tough negotiations regarding the debt limit, and a number of appropriations, and an agreement that emergencies like natural disasters needed additional head room, so there was an agreement that we would have additional spending if we were faced with a disaster, and in the house debate, clearly, everyone understood we are faced with disasters. i would urge our republican friends in the senate and speaker boehner and majority leader cantor to do exactly what they suggested 12 days ago we all ought to do -- seek commonground. in our view, we wanted a higher level of funding which the administration and fema says is necessary, but because the republicans do not agree on that
figure, we have come to their figure in leader reid's proposal, and we suggest that we move forward on the number of we've agreed to to fund government. everybody said yesterday on the house and senate floor we do not want to shut down the government. at a time 6 crisis in our economy, shutting down government would be a job destroyer, so i want to commend senator reid and senator durbin and senator schumer for their leadership and urge the republican colleagues on the house side to, yes, you said let's reach common ground. this is commonground. let us do it so that our people can have the confidence that their government is there when they are confronted with a disaster that puts them at risk, and i thank the senate for allowing us to join them in this very important statement. >> thank you. thank you, senators reid, hoyer,
pelosi, and senator durbin. today we had a bipartisan vote to defeat the house bill, 59-36 -- it was not close. now is the time to work towards a fair and reasonable solution to fund disaster relief and avoid an unnecessary and destructive government shut down. the majority leader has said he's willing to meet with house and senate leadership this weekend. we hope that speaker boehner and senator mcconnell will take him up on the offer to negotiate a solution. our position is let's talk over the weekend. their position is you take it or leave it. their approach failed on the senate floor this morning, and it's time for them to change their strategy. we have a failed safe on monday. it's a bill to keep the government funded at levels that the house and senate
democratting negotiated, and in a good faith compromise, it con tapes the same exact amount of disaster relief funding that the house republicans supported. the last thing we want to do is under fund fema in a year of record disasters, especially after passing a bipartisan bill in the senate to fully fund fema last week, but we are willing to adopt the house's funding level and work out emergency funds at a later time. the only difference is that our bill doesn't require the job killing cuts that the chamber of commerce opposes and 245 our fragile economy cannot afford right now, but we're hopeful that reversing the job cuts in this bill will not result in republicans opposing it on monday night. we trust the republicans agree with democrats that now is not the time to be cutting good paying american jobs and certainly not as a precondition for helping disaster victims
across the country put their lives back together after the wave of tornadoes, floods, and hurricanes we've experienced in recent of months. i met with all kinds of people who suffered and suffered and suffered throughout upstate new york, and to put a political agenda on their backs as they drug l to regain their lives is unfair and wrong. now, a number of republicans have come up to me this morning and said they want to do the right thing and fund disaster relief. many of them are from states that are suffering, and they know that fema will run out of money, and those states will be high and dry, and now there's been a bipartisan vote to defeat the house bill. i trust that these republicans will join us monday night and do the right thing and provide fema with the resources they need to help disaster victims before they run out of funding. people across the country will be reaching out to those
republicans this weekend, particularly people in their states who support what we're doing in a good faith effort 20 make sure that we all do the right thing with the country, put politics aside, help disaster victim, and avoid an unnecessary harmful government shut down. >> questions? >> have you contacted about the potential of weekend talks? >> of course i made the invitation on the floor and talked to senator mcconnell on the floor and had a brief conversation with speaker boehner today, so, yes, and, you know, everybody -- it's pretty simple. it's not as if we're going to have to work our way through the budget deficit reduction again. we did that. it's a simple thing, very simple, and i can't understand their logic.
we've agreed at their number. the bill i have at the desk now, we've agreed at their number on fema. i mean, do they want the government to shut down? do they want fema to close? fema will close. they have money to go through monday or tuesday if we're fortunate. >> you talk about wanting to take a weekend to cool off, but all week, including today, you talk about the need to get this money out there now immediately because it's desperately needed. why wait? what's changed? >> first of all, the government funding goes to the first of the month. fema is more desperate shape, and that's why we talked about making sure we finish this on monday, so i don't think anything's changed other than what we've been saying all week. >> [inaudible] have to just go to the break here -- not your side necessarily, but that's what it
takes to work it out. >> i guess the only al terntive is to go to the job destroying bill, but the house picked up 36 votes here today, 36 votes. this is not a close call. >> senator reid? confident you do not have the votes for this bill. why not just have a vote today, dispose of it, and move on to the actual agreement? >> that's really quite simple. we believe that after that bill passed by -- had no chance of passing at 36 votes, we believe people need the opportunity to take a look at this. they are going to be hearing from, you know, we had some really unusual allies for us on this like the chamber of commerce. we don't usually come here and trumpet the chamber of commerce being on our side. we have -- we have republican may mayors, republican governors, governor christie are saying don't play games with
funding emergencies. these are desperate people. not only is it just the job killing perspective, but as many as 50,000, but in this or that, fema provides jobs also, so i think that we're -- [inaudible] >> what do you do if the bill fails monday? >> listen, that should be a question that speaker boehner and senator mcconnell look at. not us. we did our job. listen, we passed a bipartisan bill and went to the house. they have not touched this. we have shown the world that the bill that they passed on the house with by a very narrow margin was overwhelmingly defeated here. i don't understand how anyone
could suggest nip is at fault other than the republicans and the house. i think a weekend of somber thinking about this what this is going to do to fema and i think the government will pick up significant -- >> is there a scenario to accept opposites? >> no. >> white house involved in any of the gorgeses and republicans gather four wince and say the bill -- [inaudible] >> president will do that if necessary, and i don't think that's necessary. i would have to think that the vote monday as all eyes will be upon that including the speakers and leader cantor misses a vote, and i think -- listen, we know what went on in the house yesterday. they were trolling for votes for almost -- maybe more than 24 hours -- to get enough votes to
satisfy the tea party, and, boy, did they make a bargain. what a bargain they made. i don't know the exact figure, but i think it's about $28 billion, and they said we're not going to vote for this, so the grand bargain they made instead of giving $28 billion, they have $110 billion. you know, i think if i was a gambler, and i'm not, i would think these are pretty bad odds. okay, thanks, everyone. >> are you confident the house passed the bill that leader reid has thrown out? >> i am. >> you are? >> yeah, i think if that's the bill that comes back to the house as i hope it will, and it wouldn't even necessitate in my view the calling of the house back that we could pass that by unanimous consent, and i hope
the speaker and mr. canotor agree. the reason i read the statements from 12 days ago is this truly is commonground with agreement on the number on overall spending, agreement upon the house number voted upon, and the only disagreement would be not having an offset, and, of course, there are eight bills i have here listed that republicans voted for under george bush to meet disasters which did not have an offset. fema -- the staff tells me fema's never had an offset. there's other emergencies with justify sets, but not fema. in either event, certainly if the senate is willing to go to the house number and the number for funding has already been agreed upon, then it seems to me
that is indeed the commonground that both speaker boehner and leader cantor talked about 12 days ago. thank you. >> [inaudible] >> funding for the federal government runs out september 30th. the house passed a stopgap spending bill to keep the government operating until mid-november, but the senate voted that bill down. joining us by phone is a congressional reporter with "politico". what's the next step for the legislation? >> caller: well, senator reid scheduled a vote on monday evening for an alternative plan that mirror the house bill, but does not have a corresponding spending cut that house republicans included in their proposal, those cuts, of course, would partially offset the disaster relief, the $#.6 billion in disaster relief spending of the house approved.
know, that plan looks -- the reid plan alternative measure appears destined to fail. mitch mcconnell said on the floor that he's not confident it has the votes to pass, but democrats seem to think if they hold this on monday evening, it will pressure enough republicans to cave begin that fema funding is drawing up early next week, a government shut down looms by the end of next week, and think think by monday there's enough republicans to break party lines, and that could plan force the house to accept the proposal, but there's no evidence that that's imoing to happen at this point. >> fema runs out of money on monday. what happens to the agency? does it close for a week while congress finds a way to fund it? >> caller: i think they'll have a hard time spending money in hard hit disaster areas. of course, hurricane irene, the devastated the east coast last
month, the texas wile fires as well, they are burning money at a really high rate, and they're concerned they're not going to be able to keep up with their operations if congress does not come up with the solution here, and in really what they are arguing over is a pretty small slice of the overall budget pie. i mean, this is a plan that would -- this overall budget would spend more a trillion dollars to keep the government operating, the entire federal government operating, and what we're looking at here is something, you know, something barely -- a small fraction of this given that, you know, we're just talking about billions of dollars, small, you know, $1.6 billion in offsets, so, i mean, the democrats don't want any of those offsets. republicans are insisting on it, and we're not clear how they'll resolve that. >> week's end when money for
fiscal 2011 runs out, how likely is a government shut down? >> caller: i think they'll resolve it for the reason i just said because this is 5 small number. this is not the same fight they had back in april when they were really arguing over the scope of the government, how much to spend. they already agreed to the top line spending levels, that was part of the debt ceiling agreement reached back in august. the hard things are resolved. it's the smaller thing they have to worry about, and if disaster relief, you know, is curtailed in my way the beginning of next week, members will be under enormous pressure to resolve that and the larger impacts, and that's a likely scenario. >> what does this mean for the credit rating? >> well, that's a great question because, of course, as we know s&p when they downgraded us from an aaa rating, they said that the reason they did it was the
political process and both sides squabbling over the efforts to pair down the deficit. you know, this is -- this bill, you know, wont do anything to bring down the deficit, but what it will do, you know, it could, you know, lead to less confidence in the political process, but the bigger spending, the bigger fight over cutting the deficit and debt, of course, will happen later this fall when the congressional super committee which is negotiating more than a trillion dollars in cults will propose something if they can reach a deal. >> quickly, the house will not be back for votes until october 3. what happens to the spending bill? >> caller: that's a question we want to know as well. we passed a bill, the senate needs to accept the bill, and
everything would be fine. they are trying to really put the pressure on the senate democrats to accept the house bill, so, you know, senate, of course, tabled it, but it's not totally dead. they can still move that measure again, so i think that, you know, 23 there is -- if there is an agreement, they probably have to come back into session to approve a final plan, but if not, it's not clear which side gives in at this point. >> manu raju with "politico". appreciate the information. >> caller: thank you. >> the senate stands in recess until monday at 3 -- 3:30 p.m. eastern. they debated the scheduling of the vote. following leaders reid and mcconnell and hear from the chairman of the appropriations committee. >> reserve the right to object
and with the indulgence of my good friend, the ma senior my leader, i have brief remarks about where we are. for anyone who's confused about what's going on in congress right now, let me make it easy. in order to keep the government running beyond next week, congress needs to pass a short term bill that funds government operations at a intending level both parties can agree to. we already agreed on a spending level. that's already been done. last night, the house much representatives passed a bill that meets that figure that we agreed on a couple of months ago. here's the hold up -- because of some of the horrible weather we've had over the past several weeks, we've all greed to add emergency funds that we didn't originally plan in this bill. republicans have identified a
couple of cuts to make sure we don't make the deficit any bigger than it already is including offsets that leader pelosi has used in the past. the rest is from a cut to a loan guarantee program that gave us the scandal. now, i think we can all agree this program should be put on hold until we get more answers, but our friends on the other side don't like the idea. they'd rather just add these funds to the deficit. why? because they say that's the way we've always done things around here. well, i think there's a lesson we can draw from the dates we've been having here over the last six months. it's that the american people won't accept that excuse any longer. the whole -- that's the way we've always done an argument is the reason we got a $14 trillion debt right now. if we pass this bill, fema will have the funds they need, have the funds they need to respond
to the emergencies. that's not the issue here. what's at issue is whether we're going to add to the debt or not. now, we have a path forward to get disaster funding done right here today. there's absolutely no reason in my judgment to delay funding for disasters until monday as my friend, the majority leader, is now asking us to do. i don't think we ought to delay at all. now, we just received the amendment a few minutes ago, but we are aware of what it does, and i think it's important for us to try to resolve this issue sooner rather than later. let's just walk through the next few days. if we don't have this vote until monday, then that leaves 24 hours or so before the jewish holidays begin, and then several days before the end of the fiscal year. it strikes me that we'd be bet better off to go ahead and have
this vote now and enter into the discussions that will probably now be delayed until sometime monday night to see how we can resolve this impasse between the house and senate. we'd be happy to have the cloture vote on my friend, the majority leaders' proposal right now rather than monday night to get a clear sense of where we stand, so it's my view that we ought to have the vote today rather than wait until monday, and basically squander the next few days towards getting an agreement we know we have to reach. therefore, mr. president, and i thank my friend, the majority leader for letting me explain my position, i object. >> mr. president? >> objection is heard. >> mr. president? >> the majority leader. >> first of all, my friend i'm sure understands that this great piece of legislation that was sent us to by the house received
36 votes over here. it was tabled on a bipartisan basis. mr. president, the matter that's now before the senate is really a nice piece of legislation, funds the government from november 18th. that's what the house wanted. it also has money in the bill to take care of fema, and we recognize that even though we passed a bill here with bipartisan support that have $6.9 billion which we believe is a corporate figure, in an effort to compromise in this cr, we have the numbers that the house thinks is a better number. that is what is bever us, and -- before us, and so, mr. president, my suggestion to my friend, and he is my friend, is that the two democratic leaders,
reid and pelosi, two republican leaders, mcconnell and boehner, should just cool off a little bit, work through this. there's a compromise here, and the compromise is now before the senate. everyone once in awhile needs a cooling off period. the government's not shutting down. i spoke to mr. fugate myself. there's money. we will prevail, and i hope over the weekend that the four leaders with lead their troops in the right direction, so i, again, ask anonymous consent to invoke cloture with the amendment occurring at 5:30 p.m. monday, september 26th. >> objection? >> does the mr. president reserve the right to object? obviously here in the senate we have a 60 vote vote, and that's what we will have monday afternoon. i see no reason why we shouldn't advance that to know, so it can
be clear whether or not this measure would pass the senate, i'm pretty confident it will not, and i don't see any purpose to be served by delaying the outcome of that making the outcome clearer to monday when we could have a clear outcome today. therefore i object. >> mr. president? >> the majority leader. >> thank you, mr. mr. president. first of all, we have a piece of legislation at the desk that takes care of all the issues. it takes care of funding fema after -- sorry, takes care of it after october 1st. it also takes care of fema for the foreseeable future. that's a nice piece of legislation. it's not our number. it's the house number. i would ask unanimous consent that they concur to the senate
amendment, amendment 656 be agreed to, reconsidered main laid on the table without debate and statements relating to this bill be placed into the record, and, in fact, what we're asking here is the cr with the fema language be passed. >> is there objection? >> mr. president, we'll have that vote on monday. i object. >> objection is heard. >> i renew my request. vote monday; is that right? i tell everyone, mr. president, and as my friend said the vote is monday. we'll keep the vote open if people are really pressed on planes, i work with the republican leader to make sure everybody's protected as much as possible. >> is there objection to the renewed request for monday? without objection, so ordered. >> mr. president, the united
states senate is considering hr2608, a continuing resolution to ensure that our vital programs continue in operation while the congress completes angst on our appropriations bill for this fiscal year. as all of my colleagues are aware, i do not welcome the reality that we once again need to approve a stopgap measure as we prepare to begin the next fiscal year. unfortunately, that's the position we're in now. the time wasting debate on raising the debt ceiling has led us to this place. put simply, mr. president, we have no choice but to pass the short term measure. i would like to point out, however, that unlike last year,
we see this as a short term need, not a long term remedy. because even though there was neither agreement on spending levels nor an allocation for discretionary spending until the august recess commenced, i'm going to inform the colleagues that the appropriations committee completed their work on the 11 bills required to fund our federal agencies. in the past three weeks, the appropriations committee met to review and favorably approve ten bills for fiscal year 2012. eight of those bills were reported out of committee on an overwhelming bipartisan vote, and by that i mean, something like 29 to 1. the senate received further
bills from the house. appropriations already have commissions ready to take up any of these bills on the floor when time allows. in the interim, enacting continuing resolution is essential before the congress goes on recess. the bill passed by the house provides the bare bones minimums required to ensure government functions will be continued without interruption. it also includes a few critical legislative positions to sustain vital programs otherwise would be terminated. there were minimal items in which the administration and members of this party would have liked to include, but the house did not agree to include them. the house cr also provides a limited amount of disaster
funding which has been addressed by others. i want to state for the record that i'm particularly disturbed at the position of the house that therefore is 2011 emergency disaster assistance would be offset by vast technology vehicle programs. mr. president, as has been the long tradition of the congress to approve disaster assistance without need for offset. mr. president, others will likely come to the senate floor to challenge that remark. they point out that in many of emergencies, congress recommended uses decisions to offset the cost of the bill. they are correct. as usual, the details tell the true story. the proamptions committee annually reviews unobligated balances that remain in programs
and those that are unnecessary are recommended for rescission or reapplication to join other programs. however, in the case of the disaster assistance, i challenge my colleagues to review all appropriations bills for the past decade and fund a single instance where a committee paid for disaster by resending funds from other programs. no one would fine an example because quite simply, there are not any. equally important, as noted above, year after year, the congress resends unobligated funds, but only when they are no longer needed, and in the case of the remaining balances for the advanced technology vehicle programs, these funds are needed. mr. president, hardly a day goes
by that someone doesn't come up to the floor and note the need for job creation. here is a program that's creating jobs, good jobs, jobs with a future, and investing in new technologies to make a nation more competitive in the international market place is exactly the type of program where federal government intervention makes sense. the notion that our republican colleagues in the house would propose resending $1.5 billion in funding from this program in the current economic climate borders on the notion of unsensible. finally, mr. president, i note that today's balance in the disaster relief fund are now at $175 million. our people are in need of assistance now. the congress cannot wait any longer to address this need. all of my colleagues who have
republican senator jim demint called the current debt crisis, quote, and chartered territory in the joint economic committee hearing tuesday. economic and tax policy scholars testified on the challenges of creating jobs in the harsheconom economic environment.ne the witnesses disagreed on the. route the white house should take to lower the federal debt. this is an hour and 20 minutes. the topic is what is the real debt limit. we appreciate the panelists we
have here today. i want to commend senator demint for spearheading this hearing. i would yield to him for the opening statement. >> i appreciate all of your work to put this together. i want to thank all of our panelists for taking the time to be here. a couple of months ago, everyone was in a panic about what might happen if we cannot borrow any more money. the president mentioned it might not be able to pay social security and talked about reneging on payments to contractors. it is a pretty dire situation if the united states cannot borrow any more money. that debt limit was arbitrary set by congress. it is one we could change by a
simple bill. my concern is that where is the real debt limit? when do we hit the wall. perhaps the fed cannot print enough money. at what point is there not enough credit in the world to continue to finance all the debt turn nations. their model a census stops working -- acidulous stops working because of the debt. at a coupleook se relative to the gdp. there's no way we will get that. is a buying a lot of our debt are ready? is there still a mark for the
kind of debt that the united states needs to sell? it is a washington term, said the shortfall. we said we would reduce that to put $1 trillion over the next 10 years. we're giving the impression that we're actually lowering the debt. we will continue to release the debt. if we look at our turks -- charts, i am not sure we can borrow that much money. where is the tipping point for american? beyond which the interest rates will rise sharply in economic growth will decline dramatically.
as you look at the potential tipping point for greece and ireland and portugal, we see the united states is right there. bulkeley our panelists will help us sort this out. what does the united states look like when we hit that tipping point when we hit the limit? how high will interest rates go? what will be the borrowing cost if we can in fact borrow the money will the fed print money? these are things we are trying to anticipate.ticipa the feted is engaged in unprecedented action including the purchase of trillions of dollars of u.s. treasury and mortgage-backed securities since in financial crisis in d008, al 2008 to $2.90 trillion.
we can see what the federal reserve has done. it means we are printing money and buying debt. how could the policies affect the tipping point? what can we expect? there are lots of questions. we need to know how long they can monetize the debt before the world begins to lose confidence in our currency. my challenge to the panelists is all politics aside, our country is drowning in debt. the plan is to continue borrowing money for the foreseeable.
>> i i want to thank you for calling today's hearing to e examine the effect of the national debt on the economy. i welcome our witnesses and extend a warm welcome to bl dr. lawrence, a professor of economics at johns hopkins university and johns hopkins of course is located in baltimore, smack dab in the middle ofn district. and the middle o week, he testified before the new joint select committee on deficit reduction. he reported that if we proceed under current law, allowing the bush tax cuts to expire the end of this year, debt will equal
61% of gdp. it is recorded between 1971 and 2010. under the baseline, debt held by the public is expected to balloon to nearly 190% of gdp by 2035. notwithstanding, the latest long-term projections under the bush control act, interest payments on the act would create a clearly unsustainable scenario. there is no inherent contradiction between using fiscal policy to support the economy today and imposing fiscal restraint several years
to now. we want to achieve a short-term economic pain and fiscal sustainability, the combination of policies will be required. draconian spending cuts will not generate the economic growth we now. compete succeed.hem to compete more over, the cuts are a necessary to rein in the debt and will only serve to slow are already tepid growth.
the recession that started in 2007 is responsible for more than $400 billion ever and the deficits. one of the most effective steps we could take it today. according to the clinton ministration, which recited over one of the most sustained period of economic growth in our nation's history, she said investment in infrastructure would address the jobs gap here
an extra percentage point of growth would do more than reduce the deficit during that time. an extra percentage point would add about $2.50 trillion in revenue. while this is aimed at the federal debt, the debt is in nominal factor. it is slowed hiring. it reduces public investment in the continuing foreclosure crisis. this rather than the other way around. until we recognize this reality and to check all these
challenges. >> thank you. we will keep the time manually. we will make a noticeable that as we come up to the five minute time limit is a timer and a redd time limit. -- this is the time limit. we yield to senator demint. >> it is my privilege to introduce are three distinguished witnesses. this is an enormous performance to the american people.
he is currently a professor public policy. he previously served as a member of the economic policy advisory board. he is a consultant to the u.s. treasury department and the board of governors. in 1999, he served as a chairman of the international finance destitution. he is the author of numerous books on economic theory and policy including a multivolume history of the federal reserve. he is a ph.d. in economics.
next we will be hearing from mr. chris edwards to is currently the director of tax policy studies at the cato institute and editor of the web site. he's the senior economist for the joint economic committee in the tax foundation from 1992 and 1994 bear he has done extensive research and writing on a variety of economic topics.
it is the high inflation countries. with the specific focus is on how to best reduce inflation. he is currently a research associate at the national bureau of economic research. he was previously elected at the imf institute a member of the federal reserve board's academy advisory panel and a consultant on the international monetary fund outlook. he told a be a in economics -- a ba and phd and economics. it is great to have the odd here today.
>> my association with this committee is back to the days is senator paul douglas. he prodded them to stop holding this and hold monetary policy to do much more. today i will answer the question that they seek to answer. i will introduce my answers with my explanations of why policy is misguided and mistaken and inappropriate. there are several reasons. in writing the three volumes of the federal reserve, i've written more transcripts and any person can endure. with rare exceptions, one looks in vain for statement of the
medium-term consequences of the actions taken at the meeting. they never tried to reach agreements on the consequences of its actions to the public. it publishes a forecast. there are no clear relations between the forecast and the action. concerns but they're mainly about the near-term. there is greater importance on the medium term. they seem to do something of a high unemployment. they neglect the fact that there's no shortage of money and liquidity. this never achieved anywhere.
there's never problem with too little liquidity. last time they tried it, since some of billion dollar was added. several members said there are limits to what they can do. money growth for the past six months is rising at an almost 15% annual raise. here is the charge. it is recently the in rate of increase. inflation is a result. it has begun to rise. prices are rising. the u.s. dollar continues to sing. there is the announcement of an
enforceable inflation target to give confidence that we will not inflate. in 1977, congress gave the federal reserve a dual mandate. it pursues these goals in an inefficient way by pursuing unemployment. it is shifting to an of climate control. -- to unemployment control. the great inflation is an extreme example. unemployment and inflation rose. it is in contrast to policy. more best follows a role that included both. in article one, it gives congress ultimate control of
crowd out investment. one of the most effective things they do it is passed a moratorium on new regulation for the next five years excepting national security. >> year five and a time and has expired. will you include testimony? >> yes. let me say this. why wait for a tipping point in a crisis that we know the debt -- why wait for a tipping point in a crisis? we know the debt does not include fannie mae and freddie mac. there is not a point that we can lock down and say after this crisis occurs we do not know.
-- say "after this crisis occurs." we do not know when the crisis occurs. the market changes its mind without prior notification. we should begin. we have ample warning that we are on an unsustainable path. tot path is to say we need reduce the deficit in a credible way. we do by announcing a plan that can put this on the path that we have to be gone if we're going to restore long-term growth rate. >> but the testimonies of three witnesses will be submitted. >> the cbo projects that federal
spending will rise 24%. budget chart showed, the federal debt will explode almost 20% by 2035 unless we make reform. some people think it is ok if america raises taxes in coming years because they think we have a uniquely small government in this country. that is the longer the case. if you look at data, total federal spending in united states is 41 certification of gdp. that is only -- 41 % of gdp. that is only 4 % less.
we are becoming a bloated welfare state. this is one of your charts showed. if you look at growth over the last four years, our debt has grown the fastest. of crisis going on. we're getting up to that level. it is about half of gdp by 2035 care there are fewer -- by 2035. there are fewer. it would be really sad to lose that. there are terms of all this
deficit spending. additional spending cuts in the less productive government of the economy. if the government is our is spending 4 out of every $10, it seems marginal spending is going to have a lower-return. texas a&m public finance professor edgar browning went through the whole budget a month that federal spending. hasigures the expenst lowered by about 25%. we are above the tipping point. the second basic term is creating deficits that are to support taxes that will pinch the economy down the road. economists look to the
distortions as damaging the economy. when you raise taxes because more and the economy which reduces gdp. the third harm is the debt itself. we can see this in europe. the economic growth start slow. here's what it think a lot of people are missing. if you look at the long-term cbo projections, to show the rise, it looks bad enough. it is right worse than that. they cannot take into account the fact that the rise in debt and spending suppresses g.d.p.. as vessels analysis -- a special
analysis shows that rise and is pretty scary. they show that the real u.s. income rise for the next decade or so cans that may. this is a reversal of the american income. last year they compare the road map. it is versus the do nothing fiscal sincerity. they found that the average incomes would be 70% power under the paul ryan roadmap plan. some fear that spending cuts will hurt the economy. since 2008ve trillion o car.
if you look around a real-world examples, and your staff has put this in canada and sweden. they have cut through spending. canada's dramatically cut their spending in the mid-1990's. it did not depress the economy. they boomed for 15 years. congress should turn its attention to major spending cuts as soon as we can. we have all sorts of ideas. i do not look us spending cuts as mess and we should fear. i think it will be positive boom. thank you. >> thank you. >> thank you for this opportunity to share my views on u.s. history policy.
others emphasize the dangers of debt. i will focus on a different side .f the issue appear this will be elaborated. i will argue that a reduces this in the short and medium run. it occurs during the economic slump. this varies very widely. most textbooks teach that fiscal tightening slows the economy by reducing the demand for goods and services. some suggest that it boosts confidence in the economy. they have reasonable arguments. we have to look at the evidence. in my view it is clear.
if they raise taxes today, the actions will slow economic growth and raise unemployment until 2016. this is supported by numerous studies. we will focus on these over the past few years. many economists fear it as the best available evidence. my written testimony described this in detail. they identify 173 years in which government reduced budget deficit through spending cuts, tax increases or combination of the two. the average reduction of one% of
gdp raises the unemployment by 4/10 o. higher unemployment results from longer-term unemployment. workers without jobs for 26 weeks or more. they're likely to understate the effects in today's economy. this dampens the rise in unemployment. the federal reserve cannot reduce rates. in this situation, the evidence suggests the cost of deficit reduction are about twice the normal size. but consider one a hypothetical fiscal policy.
the evidence -- the cut would raise unemployment 2.4%. it is an additional 3.6 million americans. let me mention another appointment. it focuses on deficit-reduction turgut on government spending and tax increases. -- targets on government spending and tax increases. in one way, it is not important.
the imf has separate analysis and tax increases. it is similar. can any policy rain in debt without slowing the economy? the possible answer is fiscal consolidation in which tax increases are back over time. it is more stimulus in the short term. they got it under control in the long run. it is one example of how this might be done, one could imagine cost-saving changes in in and tied him a program such as a higher retirement age that could be phased in over time. it could occur after the economy has recovered from its current slot. this reduction will be less painful than because interest
rates would be above zero. let me thank you again for your attention. >> thank you for your testimony. we will begin a round of questioning. what is the real debt limit for america? it is dangerously near and not in our control. actions change quickly and countries that at prudently are in a better position. my question is do you think there are some lawmakers in denial about the seriousness of our debt crisis? temporarily, it is being masked by inside and outside the fence
quantitative easing lower of interest rates. it creates a flight to safety. it is temporarily lower. do you think that once the true cost is revealed that there could be a more serious action by some in washington to get this crisis under control? >> i believe steps are to get 1.5 trillion in reductions. whinnied the key -- give people confidence that their future -- we need to give people
confidence that their future is bright, that we are on a stable pattern, that we are going to go back to the future that the wave -- the way that we've done the past. unlike mr. ball, what models like the imf of model leave out that if you remove the sources of low productivity and goods, it may be very desirable for people to receive transfers from the government. i do not dispute that. but those have very low productivity use. if we transfer resources to higher productivity use, we raise the future. if we cut the deficit, we convince people that their tax rates are not going to be higher in the future. the imf model does not allow for that. it does not take into account the productivity changes and the beneficial effects of expected lower tax rates.
those are important conditions. let me close by saying two things. if we look at the history of the post-war period, we find that there were three fiscal changes they're really did enormous good. one was that kennedy-johnson tax cut. the chairman of the council of economic advisers said the most effective part was the business tax cuts they got the biggest bang for the buck. the sec that big fiscal change they worked well -- the second big fiscal giselle were well was the reagan tax cuts. and the third policy they gave people confidence or the tax increases under clinton, which assured people that their future tax rates were not going to go up. they had seen what they were going to have to pay and there
would not be any more. that is important -- and give people confidence. that is what people desperately need at the moment, confidence that the policy that the government puts out are going to be sustainable. >> dr. edwards. >> i think this goes to the right point. because we are haven for international capital and a dangerous world, the american policy makers have been able to run a vote -- running giant deficits for far too long. a smaller country like australia, the debt crisis would already have happened. in a story on bloomberg, italy has been downgraded. and the s&p noted that they were downgraded because they have a dysfunctional political system. that seems to be what is going on in the united states. canada, again, to do back to the
1990's. they hit the law and ours is up to 100% of gdp. we have been skating along because we are in this special situation. japan shows that you can run as a zombie and economy for a decade or two. the real damage is ultimately the spending. we have to get spending under control. that has been the key to success in places like canada and sweden that have cut their deficits. >> thank you. the key is to restore consumer and business confidence by getting our financial house in order with a credible way to shrink the size of government to restore the balance. >> just adding on to what was just said by mr. brady, did i understand you correctly to say that when you talked about when president clinton raised taxes,
you did not see that as a negative thing. but youme if i'm wrong, saw it as something that create a level of certainty. you're saying that the certainty is more important than some other factors? [inaudible] we really want to hear that. is your microphone on? do not go on sodomy. >> he really had the benefits of the cold war so he was able to cut spending, being a finance person from wall street, rubin told him not to run deficits and he did not. he gave people confidence. does that mean that a tax increase now would do what a tax increase did then? i do not face of.
>> let's take up on that, dr. paul. after -- during the clinton era, we produce some 22 million jobs. since 2000, by the way, they have steadily declined, which historically low tax rates due to the 2001 and 2003 bush tax cuts. this reversal of growth has led some economists to describe a time. i between 2000-2010 as the lost decade for america's middle class. i find it particularly troubling that the government imposing austerity measures during a downturn have lasting negative impacts on income and employment levels and of the bulk of these negative effects fall on middle-class and working people. i am specifically concerned that
if the select committee on deficit reduction achieves a the require 1.2 -- achieves the $1.2 jury and in cuts at with only spending cuts, this could behalf lost income for millions of americans, like those or fiber tenures away from retirement. throughout the last decade, dr. ball, working americans have watched their incomes stagnate or spiral downward and 25 million more americans are unemployed or underemployed. are you worried about the detrimental impact that $1.2 trillion in cuts could have on the middle class? and does their recent work that -- and does the recent reports that we have so many people under the poverty level?
>> i am very concerned about that. there has been the stagnation of middle-class living standards. that has a variety of causes. but there is no question that an artificial fiscal contraction right now what s acerbate that. -- would exacerbate that. when there is a cut in spending , there's every reason to think that the shift in income and jews -- income distribution away from workers as well as of fall in total. as far as unemployment, no one is a lecture on how terrible problem is. there is a lot of research but it is also obvious battle losing your job is especially difficult, especially during and
back -- an economic downturn. it takes a long time to find a new job. we have half the unemployed who are unemployed for six months or more. i could go into some of the social science research about the damage that that does to families, health, of course, children's performance and skills -- in school, but you know that. >> we constantly hear to get rid of regulation, and it seems like i wonder that when we get rid of all these regulations, does that guarantee that jobs are going to be added? you make it easier for the employer to take away safety measures from the public, it easier to make more money, but is that a guarantee that we will then see jobs expand? >> no, absolutely not. under regulation, there are a
lot of pros and cons about the benefits. but as a way of dealing with the current slump, 9% unemployment, that is honestly not a factor. what we have is a classic short fall in demand. normally when that happens historically, the federal reserve has cut interest rates, and at the top -- if the economy does recover, it cuts interest rates more. what is problematic about the current situation is that the interest rates are at 0% and so the federal reserve has run at its usual ammunition. we need to think about some other way to get investment on spending. >> may add to that? i may add to that? briefly. cutting regulation and giving people the assurance about future taxes does a great deal.
what it does is if you are a businessman and you want to invest, the first thing you do, you go out and figure out what is the expected rate of return going to be. you cannot do that because every day or every week there are new regulations. the health care, finance, labor, and also for the environmental and the president is out campaigning for higher tax rates. so you do not know what you're going to face, and so you sit on a bundle of cash and wait. we have never seen so much cash in the hands of banks and businesses as we do now. so we have asked ourselves, why is that? and the answer is, because there dreadfully on certain and lacked confidence about what the future is going to be. they do not know what that future is and they cannot estimate what the expected rate return is.
if they invest, they create jobs. most of the jobs created are created by firms that start of and in the first three use -- they start up and in the first three years hire and expand. >> thank you. >> dr. ball, you have reference to an imf study. is it fair to assume that it includes many nations with the government workforces that are of a larger percentage than the u.s.? >> yes. >> so with a determination of cutting spending, those governments would have higher unemployment because of that, because the spending directly affects the government work force. >> i do not quite that that follows. it is very careful in trying to measure a spending cut of a certain amount relative to gdp, what are the average attacks on unemployment.
>> will we see with our deficit spending over the last two years, is maintaining government employees at the state levels, teachers, others, but it seems to me that that deficit spending is good for the spending and cutting that spending would cause higher unemployment, that using the study were most of the nation's have a greater percentage of government workers as part of the work force, it may not necessarily be accurate. do you not see the american economy, our free-market capitalist system, as different than most of the other nations of the world? >> this nation -- the study includes kennedy and a variety of the world's most advanced countries. -- can adapt and a variety of the world's most advanced countries -- canada and a variety of the world's most advanced countries feared it
would apply to europe and to australia. >> a lot of the people who wants to be more like centrally planned european economies, that as part of our different world views that we're dealing with right here. but maybe a question to the whole group, mr. edwards and dr. meltzer, maybe i will go to you first on this. we're clearly uncharted territory right now. we can have different opinions on that, but the federal reserve interventions are unprecedented. stimulus spending is at the end of unprecedented levels. the week and almost nonexistent recovery, and despite the incredible levels of spent -- of stimulus spending, is unprecedented. so out of these factors affect the nearness to the tipping point? we cannot determine where that
is, but where are we going to borrow the money from? we are projecting a trillion dollars a year that we have to borrow or print. we're is that going to come from? are we in such uncharted territories now but we need to do more than just sound an alarm? orion might unnecessarily rigid or am i a necessarily seeing a bleak situation? -- or am i unnecessarlily seeing a bleak situation? is to enter at percent of gdp in has been for a couple of decades. -- 200% of gdp and have been for couple of decades.
that is a real problem. as the cbo points out, if we keep this up, we will produce gdp but a bigger chunk of that will not be going to americans, but to foreign creditors. that is why our standard of living will be suppressed by this buildup of debt. i must say that hitting the tipping point -- that is not the end of the store. ireland hit the tipping point, but recent news reports indicate that they have taken good policy actions, cutting spending, and they are on the brink of recovery. they are -- they are in a much different situation in greece, even though both had mass of spikes of debt. ireland has taken the right policy courses and they are headed in the right direction. again, i do not think the biggest issue facing you is
where the tipping point is. stopping the bleeding as soon as we can. >> i am almost out of time. >> ireland did not have a large debt. it got a large dead because it assumed that the debt of the banking system. it descended as a public debt. that was a huge mistake. -- it assumed its as a public debt. that was a huge mistake. when greece hit the -- joined the ecb, it hit some of its debt. suddenly that same situation gave rise to a loss of confidence. that was a tipping point. why did not occur two years, five years earlier? i do not think anyone can answer that. >> senator mcculvane is
recognized. >> i have learned not to get in a battle of wits when i'm woefully underarmed. it has been a long time since i've taken economics. let me try not to make a big of a fool of myself. do you believe that there is such thing as a tipping point in the size of this debt? >> absolutely. all three of us agree there is a tipping point and we do not know where it is. it would be prudent not to find out. by no means to want to say that we should not be very concerned about long run sustainability. >> that is where i was hoping we could get. if we get past that point, it would be much worse than the situation we find ourselves in today. is that a fair statement? >> probably. because the u.s. is special and this is an president, when it would happen or how bad it would
be, again, it is the kind of thing we do not want to learn about. >> and that is one of my frustrations with the classical yesian.cion's -- ken we sit with the board of experts regarding entitlement, two republican witnesses, an independent witness, and a democratic witness. they give as between two years and five-years, and one of my concerns is when i read your analysis and when i read your testimony, we lack any type of this long-term outlook. we're simply looking at the next quarter and an effort to try to
boost the gdp. you go to the end of your testimony and you talk about wide printing money an expansionary policy might not have the same type of inflationary outcomes that we have seen. but many of us, including members of this board, because you say businesses do not monitor that that balance sheet and they do not base their pricing decisions on changes in the monetary base, i use to run of business and i can assure you that i did not watch their respective tariff policies. but i watched my costs. when my costs went up, i had to raise my prices. i was not watching the fed, but the brokers in food and fuel certainly were. it might cost one up because of expansion or policies, i had no choice to raise my prices or go out of business.
he saw hyperinflation without -- and there was high unemployment at that time, fairly low and productivity, and we had tremendous inflation. what i fear when i look at your proposal is that we are underestimating the risk of inflation and hyperinflation. take a minute and tell me why i can sleep tonight. >> on the fiscal issues, you talk about the long run in the short run, in the long run we are all dead, something that people are embarrassed about now. but the long run is important. there is a lot of agreement about the long run dangers of the debt. but we need to be realistic about if we are very aggressive right now at cutting the debt, there will be major costs. >> if we believe that we were closer to the to pinpoint rather than further, if we believe that we were closer than you may
the, is an entirely rational for us to take steps that we're doing? >> at some level, the right steps are obvious. everyone could even agree. it is addressing the looming -- there is a cbo charge of that debt going off, primarily because of entitlement programs. in a perfect world, congress would get together and have a friendly discussion and figure out some nice moderate compromise on how to fix entitlement programs. that would solve the long-term problem without giving a big negative jolt to the economy today. if we address the deficit by willy-nilly spending cuts over the next decade, maybe and i am not going to save rare that that is overall a good bad, but there is owned by higher unemployment, they're going to be costs.
>> you mentioned willy-nilly cuts and i agree with you, simply going in and cutting randomly might have a different outcome than cutting specifically. the canadian example has been mentioned. going back and looking at history, it appears that there cuts focused on wealth transfer programs and not infrastructure. would you agree with the premise that cuts and wealth transfer programs might have less of an impact on unemployment and cuts to infrastructure spending? >> i think that is plausible. infrastructure spending has a substantial cut back on unemployment. -- the impact on on employment. -- effect on employment. when an economy is overheated, workers push for higher wage